Jan. 27 – As a city that strives to become an international financial center, Shanghai has been increasing efforts to diversify its existing financial system through attracting international equity investors. At the recent LP & GP International Summit of more than 300 limited partners (LPs), general partners (GPs), investors and bankers, there were discussions on the new investment environment and opportunities for the industries of venture capital (VC) and private equity (PE) in China.
Held between January 22 and January 23 in Shanghai, the summit attracted over 100 local and international LP representatives with a total fund capital exceeding US$12 billion. At the same time, more than 120 experienced GPs – such as Goldman Sachs, JP Morgan Chase, Morgan Stanley, Kohlberg Kravis Roberts, Bain Capital, Draper Fisher Jurvetson, Highland Capital Partners and Softbank China Venture Capital – also attended the summit.
Six governmental officials, scholars and investors gave keynote speeches on the morning of January 23. Chen Gongmeng, managing director of China VC Research Institute, said in his speech that China’s VC and PE investments have seen explosive growth during the past few years. A survey conducted among 597 investment institutions shows that total funds reached RMB17.7 billion in 2010, about twice the amount raised in 2009.
Along with the increasing strength of the Chinese economy and its currency, RMB-based funds saw a significant expansion in 2010. RMB-based funds accounted for 63.4 percent of the total VC raised and 88.6 percent of the entire publicly and privately offered funds last year. In 2009, the figures were 52.5 percent and 85.3 percent, respectively.
However, Chen added that despite the eminent development in VC and PE investments, many projects in China are overvalued and there are not enough investment-worthy projects.
In addition to the surging project-entry prices that may increase the investment risks in China, specialists who attended the panel discussion sessions in the afternoon also expressed their concerns over the immature aspects of China’s VC and PE markets. Both the expectations of a much shorter profit return period and the lack of professional LPs are the unique features the Chinese market boasts compared to overseas market.
Specialists also discussed on the current most-invested fields based on their own backgrounds. The fields that are most discussed are the health sector, clean energy, financial services, and IT industries.
Zhu Xiaohu, partner of GSR Ventures, an investment company focused on high-tech start-ups, shared the emerging opportunities in IT industry such as the tweet, social networking, group buying, e-commerce, online financial services and online advertising. While the internet development left people questioning how they would make money through the online platform 10 years ago, the diverse online business modes nowadays have brought enormous profit to investors.
When asked about opportunities in the medical sector, Peng Shichen, Chinese regional managing director of WI Harper Group, a U.S. company which currently has investments in seven medical businesses all over the world, believes special medical institutes, medical services and medical facilities are all fields with great opportunities.
Managing Director of Spring Capital Xue Yiming thinks China’s health industry is entering a high-speed development stage. Health businesses will see a massive amount of chances because China has such a large population and everybody needs medical services.
The forum paid special attention to projects featuring innovation. As the leader of a company that invested on Innovation Works, a company where young people can obtain help to create successful start-up companies, Peng said innovation in the fields of mobile internet, e-commerce and cloud computing are usually the projects that attract most of their interest.
Another topic the discussion sessions focused on is the future of RMB-based funds. Although many international investment companies still take U.S. dollar-based funds as their major business, most of them believe the development of RMB-based funds is inevitable because of the increasing number of domestic investors with sufficient cash flow and internationalization of the Chinese currency. Peng pointed out that RMB-based funds are currently more suitable for enterprises with little competitiveness because they provide them with easier and faster access to investment, while U.S. dollar-based funds are still usually the first choice for companies that want a larger value expansion over a longer term.
Simon Eckersley, co-founder and CEO of HAO Capital, a PE firm based in both Hong Kong and Beijing, said involvement in RMB-based funds is under their consideration now and he is actually more concerned with the financing stage of RMB-based funds. He hopes that in the future there will be access for overseas investors to make RMB-based investments.